Back two years ago, I reviewed Ben Stein’s & Phil DeMuth’s book “Yes You can time the Market” in which they discussed ways to time the market over the long term, using various signals signs to determine the long term (15 year trend) of the market. They definitely did not believe in short-term timing, but they did present a good case for how to look at the current state and make long-term determinations.
I followed up with several other posts in which I looked at short-term timing, and at what Stein/DeMuth’s strategy would have resulted if I had followed it since graduating college in 1986 (answer, I would have been 5% – 10% richer over a 30 year period, including the dot.com crash).
I thought I’d provide a slight update to folks in case they were interested.
If you remember, Stein/DeMuth had four key measurements to determine the long-term direction of the market:
- Price vs 15-year average
- Price-to-earnings ratio vs. 15-year average
- Dividend yield vs. 15-year average
- Bond yeld vs Dividend yield
For Jan 1, 2018, the numbers showed:
- Price (adjusted for inflation) of $2,883 vs 15 year avg of $1,789 – don’t buy stock
- P/E ratio: 24.97 vs 15-year average of 23.2 – don’t buy stock
- Dividend Yield: 1.83% vs. 15-year average of 1.99% – don’t buy stock
- Earnings Yield (inverse of P/E) vs. AAA bond yield: 4.0% vs 3.5% – buy stock
So three out of the four metrics said don’t buy. The S&P 500 for 2018 was down -6.2% (source CNBC). A lot of folks paid money for stocks that were overpriced at the beginning of 2018.
So what did Jan 2019 look like?
- Price (adjusted for inflation) of $2,654 vs 15 year avg of $1,862 – don’t buy stock
- P/E ratio: 19.6 vs 15-year average of 23.0 – Buy Stock
- Dividend Yield: 2.14% vs. 15-year average of 2.03% – Buy Stock
- Earnings Yield (inverse of P/E) vs. AAA bond yield: 5.1% vs 3.98% – Buy Stock
So three out of the four metrics say “buy stocks” – and the market is up 15.23% year-to-date
Does this prove that Ben Stein and Phil DeMuth’s market timing strategy is still valid. It appears to be still going well.
Anybody out there with an interesting market timing strategy?
Mr. 39 months